[THE INVESTOR] Kia Motors announced on April 27 that it will invest US$1.1 billion to build the first Indian plant in the Andhra Pradesh state, making inroads into one of the fast-growing auto markets in the world.

The nation’s second largest automaker signed a memorandum of understanding with the Andhra Pradesh government to build a new facility with an annual capacity of 300,000 units in Anantapur district, with Kia Motors executives and government officials in attendance. 

The construction is set to commence in the fourth quarter, with plans to start production in the second half of 2019. The automaker will inject US$1.1 billion over three years.

“We will gradually increase the operation level of the facility and by 2021, production will reach the full capacity of 300,000 units in India,” Han Chun-soo, Kia’s chief financial officer, said during a conference call after the automaker’s first-quarter earnings report.

“In India, we plan to mainly manufacture SUV models that cater to the Indian market.”

For years, Kia has been seeking to enter India to capitalize on the fast-growing passenger vehicle market in the country, as well as avoid a whopping 60 percent tax on imported vehicles.

The automaker expects India’s auto market, which ranked fifth globally by production last year, to become the world’s third largest by 2020, after China and the US.

Kia also hopes that its Indian entry will boost the automaker’s declining overseas sales in its major markets, the US and China.

Kia currently operates four overseas plants, including the US, China, Slovakia and Mexico, that accounted for 55 percent of total production last year. Once the Indian plant kicks off, the overseas production level will increase to 58 percent.

Once completed, Hyundai Motor Group will roll out 950,000 units annually, when adding Hyundai’s 650,000 annual production at its two existing plants in the country.

Hyundai entered India in 1998, operating two auto plants in Chennai, Tamil Nadu state -- some 390 kilometers from Kia’s planned plant in Andhra Pradesh.

Kia expects to bring synergy with Hyundai Motor in India by making use of its market strategy, as well as supply and logistics system.

“We will utilize Hyundai Motor’s economies of scale to secure effective cost, while differentiate the product offering and its strategy to successfully launch the brand,” Han said.

During a conference call on April 27, Kia said its first-quarter operating profit slumped 39.6 percent to 382.8 billion won on-year, hit by declining sales in its major markets China and the US.

Net profit dropped 19 percent to 765.4 billion won during the cited period, while sales gained 1.5 percent to 12.84 trillion won.

In total, Kia sold 658,332 units in Korea and overseas during the January-March period, down 6.5 percent.

By Ahn Sung-mi (sahn@heraldcorp.com)